How To Start An LLC In Texas (2024 Guide)

It’s always a good idea to know the exact steps and requirements before filing your limited liability company (LLC). In Texas, as in every state, there are a few specific requirements you’ll need to have squared away before moving forward with the process.

Unique requirements for an LLC in Texas include:

• Putting “LLC” in the name: Texas law requires the inclusion of “Limited Liability Company” or “Limited Company” in the name. You have the option to abbreviate to “L.L.C.,” “L.C.” or “Ltd. Co.” Additionally, “Limited” and “Company” can be written as “Ltd.” and “Co.” respectively.
• The LLC can’t share a name with an existing business: Your LLC name must be distinguishable from the names of other business entities in the state. If your name’s too similar to an existing brand, your application will be rejected. Use the Texas Taxable Entity search engine to see if any existing businesses have the same name as the one you hope to register. If the name is available, you can reserve it by filing a Reservation or Renewal of Reservation of Name form or Form 501. The filing fee is $40 and it allows you to hold the name for up to 120 days.
• A registered agent is required: All LLCs operating in the state of Texas must have a registered agent. The registered agent can be an individual Texan, including the LLC’s owners and workers, or a registered agent service with permission to operate in the state. The agent agrees to accept paperwork on behalf of your business in the event of a lawsuit and must have a physical address within the state—not a post office box. Crucially, the LLC cannot act as its own registered agent. Obtaining a reputable agent can cost between $100 and $300 annually. Be sure to do your research and know the agent’s service will cover all the necessary bases.

It isn’t complicated to start an LLC in Texas. Follow these easy steps to get your company established and ready for business in the state.

Step 1. Name Your LLC

You need to name your business. As already discussed, the name should include one of the following terms:

• Limited Liability Company
• Ltd. Co.
• L.L.C.
• L.C.
• Limited Company

It should also be a unique name that passes the business entity search test on the Secretary of State’s website; you cannot form an LLC with the same name as an existing entity doing business in Texas. You may also want to weed out names that look or sound similar to an existing business’s name, especially if it’s operating in your industry or locality. Deceptively similar names can raise trademark issues. And competing with another company with the same name can be bad for business—it confuses consumers, which is never good.

Just as you must include certain terms in the name, you cannot include certain terms. These include:

• Treasury
• State Department
• FBI
• CIA
• Other official terms

You may use terms such as bank, university, attorney or doctor as long as you meet the Texas State Government requirements for such entities. Fulfill those first before adding any of these terms to your LLC in Texas.

Buy a Domain Name (optional) for Your LLC in Texas

It’s a good idea to consider an online presence for your business, as it allows you to have a website and email address associated with your LLC. This enhances your online visibility and makes it easier for potential customers to find you on the internet.

Try to choose a domain name that matches or comes close to your LLC’s name. After doing so, you’ll need to purchase your domain from a domain registrar. A domain registrar is a company that facilitates the process of registering and managing internet domain names. You can choose to buy a domain name from many of the best domain registrars on the market.

Step 2. Hire a Registered Agent

As you already know, a registered agent is required to open an LLC in Texas. This is the time to hire one. You will choose a registered agent who has a physical address in the state of Texas. This person must be available at that address regularly during business hours to receive personal service of legal documents.

Who Can Be a Registered Agent in Texas?

If you are an individual resident in Texas, or an organization that has a registered LLC in Texas with a business office located at the same address as the entity’s registered office, you may consent to serve as the registered agent. In addition, an officer, owner, employee, friend or family member may also serve as a registered agent as long as they are a resident of Texas with a physical address in Texas.

Alternatively, the entity can also contract with a service provider or another business entity to provide registered agent services. It’s important to note, the entity itself cannot serve as its own registered agent.

Step 3. File the Texas Certificate of Formation—Limited Liability Company

Below are links to the necessary forms for filing your LLC as well as the related filing fees.

• Form 205: The “Certificate of Formation—Limited Liability Company” is the most crucial paperwork needed for getting your LLC off the ground. It’s available for download or can be completed and filed online through SOSDirect. The filing fee is $300.
• Form 304: An “Application for Registration of a Foreign Limited Liability Company” form must be filed by LLCs established outside of Texas that want to operate in the state. Access the form here. The filing fee is $750.

Completed physical forms should be mailed in duplicate to PO Box 13697, Austin, Texas 78711-3697.

Additional costs related to taxes, filing fees or hiring a registered agent can range between $100 and $1,000. LLCs don’t file annual reports or pay reporting fees in Texas, but they are subject to a state franchise tax.

How To Complete the Certificate of Formation

When providing information about your LLC, you need to have the following details ready in order to complete the Certificate of Formation accurately.

• LLC Name: Provide the full legal name of your LLC, including any designations such as “LLC,” “Limited Company” or “Limited Liability Company.”
• Registered agent: Include all information such as individual or business name, physical address and phone number of the assigned registered agent for your LLC. Make sure to also have the registered agent consent to serve in writing.
• Management structure: Specify whether your LLC is member-managed (managed by its members) or manager-managed (managed by appointed managers). List the names of the managers. Include the addresses of the managers. Take note, this will be public information so you have the option of using a post office box if desired.
• Purpose: Briefly describe the purpose or nature of your LLC’s business activity. This can be something general.
• Mailing address: If the mailing address is different from the principal place of business, provide the mailing address where official correspondence and important tax documents should be sent.
• Supplemental provisions/information: You have the option to include any additional provisions that you would like to be included in your LLC filing. Typically, this section is left blank unless you have specific instructions from your attorney.
• Duration: In Texas, an LLC exists perpetually, but you have the option to indicate whether it is formed for a specific time period.
• LLC organizer: The organizer is an appointed individual or entity that takes on the responsibility of forming and filing the necessary documentation for the LLC with the state and other relevant agencies. The organizer plays a crucial role in initiating and completing the legal requirements for establishing the LLC, ensuring compliance with state regulations and guidelines.
• Formation Date: State the date when your LLC was officially formed, established or will go into effect. You can opt to have this happen as soon as it is filed with the Secretary of State or choose a “future event or fact” but it cannot be more than 90 days from the signing.
• Execution: After careful review, verify with your date and signature that everything stated on the form is correct including that your registered agent has consented.

After the filing has been submitted, you will soon receive a stamped and approved Certificate of Formation from the state of Texas (10 to -12 business days if filing online).

What if You Need To Amend Your Certificate of Formation?

The Certificate of Formation for an LLC only needs to be filed once during the initial formation process. However, if any of the information provided in the original Certificate of Formation needs to be updated, modified or expanded, the LLC is required to inform the state of Texas by filing a Certificate of Amendment.

To report these changes, you need to file a Certificate of Amendment with the Texas Secretary of State and pay the associated fee. It is important to keep your Certificate of Formation up to date as it may impact your ability to obtain a Certificate of Fact-Status that is official evidence of your company’s ability to transact business in Texas. Failure to comply with state requirements and keep your LLC’s information current can greatly limit your LLC’s potential.

Step 4. Obtain a Texas LLC Employer Identification Number (EIN)

An EIN is free to obtain. It is a nine-digit number given to your Texas LLC by the IRS. This number serves as an identification number when getting bank accounts, credit accounts and filing taxes. It is an essential part of your Texas LLC.

Apply for the free EIN directly with the IRS. This application takes just a few minutes to complete and the EIN is issued immediately.

Step 5. Create an LLC Operating Agreement

Every Texas LLC should have an operating agreement that outlines how the company will run day-to-day business operations. While this is an internal document, it is an important one to running the business. The operating agreement will outline things so that members and managers aren’t confused about who will do what in the business. Ultimately, it will help reduce conflict.

It costs $300 to file for a Texas LLC. If you use a service or attorney to file the forms, there may be additional fees associated with the formation of the company.

Texas State Franchise Tax Fee

Most Texas LLCs are subject to an annual state franchise tax. There is additional information available through the official Texas Comptroller website as to how this tax is calculated. You can find related tax documents here.

Once you have all relevant paperwork filled out, you can:

• Go ahead and file them online. “No tax due” forms must be filed electronically.
• Mail the documents to P.O. Box 149348, Austin, Texas 78714-9348.

Correcting Texas LLC Filing Errors

Mistakes happen. If you file an LLC and later realize there are errors to correct, you will have to file a Certificate of Correction or Form 403 with the Texas Secretary of State.

When completing the document, carefully identify what you wish to correct. Please note that there’s a $15 filing fee and the process cannot be completed online currently.

Once you have established your Texas LLC, you’ll want to get certain items completed so that the business can operate smoothly. Here’s what should be on your list:

• Bank account: Use the EIN to open a business bank account. Fund it with money that will solely be used for the business. Always keep personal funds separate from business funds.
• Permits and licenses: Check with your local municipality to see if you need any special permits or licenses to operate your business. You may need health permits, building permits or something else to legally operate. Depending on your industry or profession, federal or state permits could also be required.
• Insurance: Talk to an insurance agent about what policies you should really have when operating a business. You should at least consider general liability insurance and may need workers’ compensation insurance if you have employees.
• Annual report: File a Texas annual report with the state comptroller’s office.

As with any business structure, there are both pros and cons to consider before forming an LLC in Texas. Let’s take a look at some of the pros and cons.

Pros:

• Having an LLC in Texas provides limited liability protection to its owners. The LLC’s creditors cannot seize the owners’ personal assets to pay the debts of the company.
• LLCs can have a single member or multiple members.
• LLCs have more flexibility than corporations when distributing profits among members.
• Operating as an LLC in Texas can enhance the credibility and professional image of a business.
• LLCs in Texas can be easily transferred or sold to new owners and involves very little paperwork.
  An LLC owner can elect to have the LLC’s income pass through to their personal income tax filing or they can elect to be taxed as a corporation.

Cons:

• LLCs require paperwork and administrative tasks such as filing articles of organization, creating an operating agreement and maintaining proper record-keeping.
• Forming an LLC in Texas involves paying various fees, such as any state fees, legal fees or annual fees, etc.
• The income generated by the business is subject to self-employment taxes.
• Owners of an LLC in Texas can still be personally liable for the company’s debts or legal actions such as loans and fraudulent or illegal activities, or if they fail to maintain proper separation between personal and business activities or provide a personal guarantee.
• LLCs cannot issue stock or shares, therefore they may face challenges in raising capital compared to corporations.

One popular question regarding LLCs is whether one is necessary in the first place. In Texas, filing fees for corporations and LLCs are roughly the same.

Before making your decision, it’s important to understand the key tax, ownership structure, management and liability differences between LLCs and corporations.

There is more than one business structure to choose from:

• Sole proprietorship: Sole proprietorships are unincorporated businesses with a single owner. They’re the easiest type of business to set up, but they also have the most liability for business owners since there is no separation between business and personal assets.
• General partnership: Similar to a sole proprietorship, a general partnership allows two or more people to form a business together but does not provide any liability protection. Owners pay business taxes on their personal income tax returns; they do not file taxes as the business. This can be very risky for all parties if someone is dishonest.
• Corporation: There is also a $300 registration fee to open a corporation in Texas. You may choose a corporation over an LLC if you want to attract outside investment. The corporation limits liability in the same way as an LLC. Corporations can be taxed as C corporations (c-corps), and some corporations can obtain pass-through taxation by electing to be taxed as an S corporation (S-corps).

Filing for a “doing-business-as,” or DBA, name (known in Texas as an “assumed name certificate”) is considerably cheaper than establishing a corporation or LLC, thanks to the $25 state filing fee. But DBAs often confuse fledgling entrepreneurs, as it’s not a business structure such as an LLC or corporation. A DBA is essentially a registered nickname for your already established business. While the terms may be talked about together frequently, DBAs and LLCs are very different.

If you are looking for more information about starting a business in Texas, check out our useful articles:

• How to Start a Business in Texas
• Texas Business Entity Search
• Best Texas Registered Agent Services
• Texas Business License
• Small Business Grants in Texas
• Filing a DBA in Texas
• How To Start a Nonprofit in Texas
• Texas LLC Operating Agreement